Year-end report 2001

Year-end report 2001 Operations (excluding result from property sales and nonrecurring items) - Profit before tax: SEK 886 M (860) - Cash flow per share: SEK 12.00 (10.34) Profit - Profit before write-downs and tax: SEK 1,496 M (1,364) Write-downs: SEK -389 M (-) Tax: SEK -257 M (-376) - Profit after tax for the year: SEK 850 M (988) - Earnings per share: SEK 8.99 (9.78) Increased dividend and new share repurchase mandate - Proposed dividend: SEK 5.00 per share (4.00) - Proposal: Retirement of repurchased shares and new mandate to repurchase shares Drott owns commercial and residential properties in regions and metropolitan areas with faster long-term growth than the rest of the country. Three-quarters of rental revenues are from the Stockholm region, and the rest from the Öresund and Gothenburg regions. Appraised property values: SEK 39.3 billion. 431 employees. More than 50,000 shareholders. Market capitalization of over SEK 10 billion (excl. repurchased shares). SUMMARY Since its listing in 1998, Drott has acquired a considerable office and residential portfolio, primarily in Stockholm. In addition to property acquisitions totaling SEK 32 billion, Drott has invested SEK 3 billion in new construction and renovations of its properties and SEK 1 billion to repurchase its own shares. Properties with poorer rental potential have been sold. Total property sales amount to SEK 12 billion. The long-term growth curve is steeper for the Stockholm region than the rest of the country, but it is also more volatile. 1998-2000 was a period of very high rental increases and value appreciation in Sweden's metropolitan regions - in Stockholm, market rents actually doubled for certain office properties. In 2001, economic conditions declined substantially, but Sweden's GNP growth remained positive. Percentage- wise, the Stockholm region - after three years of strong rental growth - noted a weaker rental trend than other metropolitan regions. Market rents for offices fell during the year in Stockholm, especially prime rents in the CBD of the city. In some market sectors, however, market rents remained steady, e.g. in Marievik, where leases on office space are still being signed for around SEK 2,500/sq. m. Kista is experiencing an imbalance between supply and demand, which has adversely affected its market rental rates. In Gothenburg and Malmö, the rental market is fairly stable. Residential rents in Stockholm, Gothenburg and Malmö are still rising slightly and demand is strong. The consensus among economic forecasters is that the strong GNP growth in 1998-2000 will be followed by a new growth phase beginning in 2003, after two mediocre years, 2001-2002. When economic growth rises, Drott's rental potential will be significant. However, the timing and extent of such growth naturally cannot be predicted with certainty. 2001 During the year, Drott sold properties for a net of SEK 3.6 billion and in the process left 37 municipalities. Now, 75 percent of Drott's rents are from the Stockholm region and 97 percent from the three major metropolitan regions. Compared with the portfolio at the time of the listing, today's holdings are more selective and have considerably higher rental potential. During 2001 the economic slowdown resulted in both a higher cost of capital and declining building right values. The telecom sector's cutbacks in Kista have caused the value of vacant office space to decline substantially. Drott´s properties have been independently appraised at SEK 39.3 billion as of December 31, 2001. The change in value for like-for-like portfolios was -0.9 percent. In the case of a limited number of Drott's properties, the appraised value is below book value. For these properties, Drott has decided, in accordance with recommendation RR:17 of the Swedish Financial Accounting Standards Council (applied as of 2002), to book accounting write-downs. The amount of the write-down - a total of SEK 389 M, of which SEK 129 M in Kista - is being charged against 2001 profit. For the property portfolio as a whole, appraised value exceeds book value by SEK 4.3 billion. Drott's residential properties continue to appreciate in value. Drott chose to scale down its sales of residential properties to established housing cooperatives during the year. These properties could be converted into cooperatives at prices exceeding their appraisal value, but by remaining within Drott they contribute - by way of value appreciation, leverage opportunities and low interest margins - to a good return on equity. Profit from operations Profit from ongoing property management operations rose to SEK 886 M before tax (860), in line with the forecast issued in the nine-month report on October 26, 2001. Cash flow per share rose to SEK 12.00 (10.34) - an increase of 16 percent. Total profit Profit before tax amounted to SEK 1,107 M (1,364). Compared with the previous year, profit was positively affected by higher profit from operations and higher gains on property sales, while nonrecurring items (mainly write-downs of property book values) negatively affected profit. Tax situation In 2001, Drott acquired companies with significant tax loss carryforwards. As of December 31, 2001, Drott had tax loss carryforwards totaling SEK 3.3 billion. The acquired tax loss carryforwards did not affect profit and cash flow in 2001, but will significantly reduce the tax charge in the years ahead. Dividend and share repurchase The Board of Directors proposes that the dividend be raised to SEK 5.00 per share (4.00). The dividend corresponds to nearly 60 percent of profit from property management operations after tax. With regard to the shares Drott has repurchased, it is proposed that they 1) be retired and that the Board of Directors receive a new mandate to repurchase 10 percent. The future Profit from operations will be affected by many factors in 2002. A positive factor for profit is that rents continue to rise for residential and commercial properties - Drott's average rents are still lower than current market rental rates. Lease renegotiations will therefore lead to higher rents, and current leases are fully or partially indexed. Moreover, tenants will move into four newly built properties during the year, which will have a further impact next year. Since its listing, Drott has divested properties with high risk/low rental potential (and thus a high direct yield). In 2001 alone, Drott sold non-prioritized properties corresponding to ten percent of its portfolio, which will negatively affect profit in 2002. Drott has also decided to invest in several properties, which will have to be vacated for extensive renovation - investments that provide good potential for future rental increases and value appreciation but in the short term affect profit. The economic slowdown will affect 2002 profit through a slightly higher vacancy rate and higher costs for tenant modifications. Furthermore, Drott's interest expense for repurchased shares has negatively affected profit in absolute terms. As a whole, the above factors will mean that profit before tax for the year is expected to be lower than in 2001. PROFIT AND CASH FLOW Profit 2001 Ongoing Result Non- Total See property from recurring SEK M page management property items 6 operations sales Rental revenues I. 3,788 - - 3,788 Operating expenses -1,440 - - -1,440 Operating surplus II. 2,348 - - 2,348 Depreciation -340 - - -340 Central expenses -90 - - -90 Result from property - 508 - 508 sales Items affecting III. - - 102 102 comparability Operating profit 1,918 508 102 2,528 before depreciation Net financial items IV. -1,032 - - -1,032 Profit before write- 886 508 102 1,496 downs & tax Write-downs V. - - -389 -389 Profit before tax VI. 886 508 -287 1,107 Current tax -922 -1963 -3 -291 Deferred tax -156 2) 135 3) 55 34 Profit after tax VII. 638 447 -235 850 Tax -2482 -613 52 -257 (current+deferred) Tax/profit before tax 28% 12% 18% 23% Ongoing property Cash flow 2001 management operations SEK M Profit before tax 886 Current tax -92 Profit after current 794 tax Reversal of 340 depreciation Cash flow 1,134 Cash flow per share, SEK 12.00 (94.5 mil. shares) Excluding 550,000 shares that ensure the company's commitments to options holders. Due to the opportunity to utilize fiscal accelerated depreciation, allocations to the tax allocation reserve and tax loss carryforwards, the current tax on profit from ongoing property management operations amounted to only SEK 92 M. Including a deferred tax expense of SEK 156 M that has no effect on cash flow, the total reported tax charge is 28 procent for ongoing property management operations. The total tax charge on the property sales is limited to SEK 61 M due to a) sales via companies, and b) previous allocations for deferred tax. (The fiscal residual value of Drott's properties is less than book value. Due to this deviation, Drott has allocated a provision for deferred tax in the balance sheet). When Drott sells the properties, a current/actual tax charge arises, while the deferred tax provision for these properties is reversed/taken up as revenue. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/13/20020213BIT01250/bit0002.doc The Full Year-End Report http://www.waymaker.net/bitonline/2002/02/13/20020213BIT01250/bit0002.pdf The Full Year-End Report